7. Historical Precedents

The vast majority of the books on economic and monetary theory
or history never mention the possibility of such "charge" or "demurrage money."
Even the monumental History of Interest Rates,
which covers interest from Sumer to today, does not mention it once.(note 7)
Is this concept then just a theoretical idea, or is it a practical possibility?
In fact, history records the remarkable ability of this concept
to adapt to different cultures and circumstances--and to generate
spontaneously the behaviors we are trying to promote.

Egypt

Recall the biblical Joseph, who interpreted the Pharaoh's dream and
saved Egypt from "seven lean years" by stockpiling food. Why
would the Egyptians have kept Joseph in such high regard for
inventing stockpiling? Its use had been widespread since the
beginning of the agrarian revolution several thousands of years earlier.
Might there have been more to it than the Bible mentions?

These stockpiles were also the basis of the Egyptian monetary
system. Each farmer who contributed to the stockpile would
receive a piece of pottery having an inscription of the quantity
and date of delivery of his contribution, which he could then use
to purchase something else. These receipts, or ostraca, have been
found by the thousands and were in fact used as currency.
However, what the Bible missed is the key to the system: there was a
time charge on these receipts. For instance, if someone wanted
to redeem an ostraca of ten bags of wheat after six months, he
would only receive nine bags. This demurrage charge reflected
the costs of guarding the depot and quantities lost to rodents.

So we can understand that Egyptian farmers would never
hoard this currency but invest in what was most handily
available to them: improvements on their land and irrigation systems.

This currency was used in Egypt for more than a thousand
years, until the Romans forcibly replaced it with their own
banking and currency system, more "modern" and having positive
interest rates. Note the apparent consequences of this change:
As long as negative interest currency was used, the Egyptians
built monuments that would last forever and maintained their
agricultural system in remarkable condition, making it the
breadbasket of the Ancient World. All this quickly disappeared when
the Roman currency was generalized. Since then, Egypt has remained
for two thousand years a "developing" country.

The Middle Ages

What triggered the exceptional economic and spiritual prosperity
in Europe, particularly from 1150 to about 1300, when the
extraordinary blossoming of all the cathedrals took place? Few
people are aware that this period coincides with the existence of
the brakteaten monetary system, under which local lords issued
silver plaques that were called back on the average every six to
eight months and reissued a bit thinner, amounting to a demurrage
rate of about 2-3 percent per month over this entire period.
People would therefore automatically invest in anything that
would last almost forever: improved land, tapestries, paintings,
or cathedrals.

From an economic perspective, cathedrals made sense as
an investment in the future. There was fierce competition
among cities to attract pilgrims from all over the Christian
world, and cities competed for cathedrals, just as today they
compete for Walt Disney Co. investments. The main difference,
of course, is that cathedrals were also symbols of faith,
masterpieces for thousands of craftsmen who chose to remain
anonymous, and designed as lasting beauty. Is it a coincidence
that cathedrals flourished as the most grandiose symbols of
community solidarity in Western history, yet declined as soon
as the brakteaten system was replaced with the king's monopoly
on the creation of currency?

While the previous examples might be discounted because
they seem to apply only to pre-capitalistic economies, the following examples bring us to modern times.(note 8)

The 1930s in Germany

In 1930, Herr Hebecker, owner of a small bankrupt coal mine in
Schwanenkirchen, Bavaria, decided in a desperate effort to pay
his workers in coal instead of Reichsmark. He issued a local
scrip--which he called "Wara"--redeemable in coal. On the back
were small squares where stamps could be applied. A bill would remain valid
only if the stamp for the current month had been applied.
This negative interest charge was justified as a "storage cost."
The workers paid for their food and local services with these
Wara. For example, the baker had no real choice but to accept
them, and convinced his wheat suppliers to accept them in turn.
The process was so successful that by 1931 this Freiwirtschaff
(free economy) movement had spread through all of Germany,
involving more than 2,000 corporations and a variety of
commodities as backing for the Wara. But in November 1931, the
German Central Bank, on the basis of its monopoly on currency
creation, prohibited the entire experiment.

The 1930s in Austria

In 1932, Herr Unterguggenberger, mayor of the Austrian town
of Worgl, decided to do something about the 35 percent unemployment
of his constituency (typicalfor most of Europe at the
time). He convinced the town hall to issue 14,000 Austrian
shillings' worth of "stamp scrip," which were covered by exactly
the same amount of ordinary shillings deposited in a local bank.

After two years, Worgl became the first Austrian city to
achieve full employment. Water distribution was generalized
throughout, all of the town was repaved, most houses were
repaired and repainted, taxes were being paid early, and forests
around the city were replanted.

It is important to recognize that the major impact of this
approach did not derive from the initial project launched by the
city, but instead had its origin in the numerous individual initiatives
taken in the process of recirculating the local currency
instead of hoarding it. On the average, the velocity of circulation
of the Worgl money was about fourteen times higher than the
normal Austrian shillings. In other words, on the average, the
same amount of money created fourteen times more jobs.

More than 200 other Austrian communities decided to copy
this example, but here again the Central Bank blocked the process.
A legal appeal was made all the way to the Supreme Court,
where it was lost.

Stamp Scrip in North America

Emergency currencies have a longer history in America than most
people realize. They seem to appear with a curious regularity--
the 1830s, 1890s, and 1930s--coinciding roughly with the bottom
of the long-term economic cycle called the Kondratieff wave.
I will concentrate on the last period because it is the best-documented
example.

The theoretician behind the movement in the United States
in the 1930s dwas Irving Fisher of Yale University. He had analyzed
the Worgl case in Austria and published various articles
about its success. Subsequently, more than 400 cities, and
thou-sands of communities or organizations all over the country, is-
sued one form or other of emergency currency. Many were stamp
scrip, involving the application of a stamp at prescribed
intervals (monthly, for example). There was also a movement to issue
this stamp script officially nationwide: Senator Bankhead of
Alabama presented a bill to the Senate February 18, 1933, and
Representative Petenhill of Indiana presented a bill to the House
of Representatives on February 22, 1933.

During this time Irving Fisher approached Dean Acheson,
then Undersecretary of the Treasury, to obtain support from the
Executive branch for the same idea. Acheson asked the opinion
of one of his Harvard professors, who advised him that the
system would work but that it would imply strongly decentralized
decision making, which he should check out with the President.
Soon thereafter, President Roosevelt prohibited any use of
"emergency currency" and announced the New Deal centered around
a grandiose centralized plan of large construction projects.

These examples all show that the concept worked in the modern
world whenever it was allowed and correctly implemented.(note 9)